REITs all adhere to the same federal law that requires they pay out at least 90% of net earnings to shareholders, as dividends. Thus, REITs are effectively arbitrage plays. They draw inexpensive debt, use the money to purchase or develop real estate of some form, then generate cash flows of various amounts by leasing the property. Sometimes REITs just get rent, and sometimes the tenant pays for insurance and maintenance, along with property taxes (if all three, it’s called a “triple net lease”). After expenses are paid, debt gets serviced and taxes are taken out, 90% of the remainder is distributed as a dividend. REITs to Buy...
Avalonbay Communities Inc (NYSE:AVB) actually enhances the apartment approach by also operating and owning multifamily communities. AVB will purchase distressed communities and renovate them or create them from scratch. Retail Opportunity Investments Corp (NASDAQ:ROIC) is another REIT that has some property in my neighborhood, and it gave me the chance to see exactly what kind of operation it runs. Senior Housing Properties Trust (NASDAQ:SNH) is doing so well that it pays a 7.8% dividend. It also doesn’t simply focus on senior living facilities, but other facilities that service that sector.